**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**(Mark One)**
| **ý****Quarterly Report Pursuant to Section 13 or 15(d) of the Securities  Exchange Act of 1934**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| **for the quarterly period ended September  30, 2003.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| **Or**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| **o****Transition Report Pursuant to Section 13 or 15(d) of the Securities  Exchange Act of 1934**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| **for the transition period from                                                           to                                                           ** |

 

**Commission File Number 000-50266**

 

**TRINITY CAPITAL CORPORATION**

(Exact name of registrant as specified in itscharter)

 

| **New Mexico**                                        |   | **85-0242376**                          |
|-------------------------------------------------------|--------|-----------------------------------------|
| (State of incorporation)                              |   | (I.R.S. Employer Identification Number) |
|                                                  |   |                                    |
| **1200 Trinity Drive, Los Alamos, New Mexico  87544** |
| (Address of principal executive offices)              |
|                                                  |   |                                    |
| **(505) 662-5171**                               |
| Telephone number                                      |

 

Indicate by check mark whetherthe registrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the past 90 days.  Yes ýNo o

 

Indicate by check mark whetherthe registrant is an accelerated filer (as defined in Rule 12b-2 of theSecurities Exchange Act of 1934).  Yes ýNo o

 

APPLICABLE ONLY TO CORPORATEISSUERS:

 

Indicate the number of sharesoutstanding of each of the issuer’s classes of common stock, as of the latestpracticable date: 6,683,107 shares of common stock, no par value, outstandingas of October 31, 2003.

 

 

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**TRINITY CAPITAL CORPORATION AND SUBSIDIARIES**

 
| **PART I.  FINANCIAL INFORMATION** |                                                                                        |
|-----------------------------------------|---------------------------------------------------------------------------------------------|
| Item 1.                                 | Financial Statements                                                                        |   |
| Item 2.                                 | Management’s Discussion and Analysis of  Financial Condition and Results of Operations |   |
| Item 3.                                 | Quantitative and Qualitative Disclosures  About Market Risk                                 |   |
| Item 4.                                 | Controls and Procedures                                                                     |   |
| **PART II.  OTHER INFORMATION**    |                                                                                        |
| Item 1.                                 | Legal Proceedings                                                                           |   |
| Item 2.                                 | Changes in securities and use of proceeds                                                   |   |
| Item 3.                                 | Defaults upon senior securities                                                             |   |
| Item 4.                                 | Submission of matters to a vote of  securities holders                                      |   |
| Item 5.                                 | Other information                                                                           |   |
| Item 6.                                 | Exhibits and Reports on Form 8-K                                                            |   |
|                                    | SIGNATURES                                                                                  |   |
|                                    | CERTIFICATIONS                                                                              |   |

 

1

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**PART I****– FINANCIAL INFORMATION**

**Item 1****.  FinancialStatements**

**TRINITY CAPITAL CORPORATION &SUBSIDIARIES**

**CONSOLIDATED BALANCE SHEETS**

**September 30, 2003 and December 31, 2002**

**(Amounts in thousands, except share data)**

 
|                                                                                                                                                                                                                                                                                      |   | **September  30, 2003** |       | **December  31, 2002** |       |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|------------|------------------------|------------|
|                                                                                                                                                                                                                                                                                      |   | **(Unaudited)**         |       |                   |       |
| **ASSETS**                                                                                                                                                                                                                                                                                |   |                    | ** ** |                   | ** ** |
| Cash and due from banks                                                                                                                                                                                                                                                                   |   | $                       | 42,392     |                   | $          | 37,559 |   |
| Interest bearing deposits with banks                                                                                                                                                                                                                                                      |   | 82,734                  |       | 3,420                  |       |
| Federal funds sold                                                                                                                                                                                                                                                                        |   | 44,000                  |       | —                 |       |
| **Cash and cash equivalents**                                                                                                                                                                                                                                                             |   | **169,126**             | ** ** | **40,979**             | ** ** |
| Investment securities available for sale                                                                                                                                                                                                                                                  |   | 59,202                  |       | 35,894                 |       |
| Investment securities held to maturity, at amortized cost (fair value  of $74,028 at September 30, 2003 and $71,639 at December 31, 2002)                                                                                                                                            |   | 72,337                  |       | 69,923                 |       |
| Loans (net of allowance for loan losses of $7,346 at September 30,  2003 and $6,581 at December 31, 2002)                                                                                                                                                                            |   | 701,428                 |       | 653,867                |       |
| Loans held for sale                                                                                                                                                                                                                                                                       |   | 24,665                  |       | 76,197                 |       |
| Premises and equipment, net                                                                                                                                                                                                                                                               |   | 17,982                  |       | 17,353                 |       |
| Accrued interest receivable                                                                                                                                                                                                                                                               |   | 6,676                   |       | 7,458                  |       |
| Mortgage servicing rights, net                                                                                                                                                                                                                                                            |   | 8,736                   |       | 3,650                  |       |
| Other real estate owned                                                                                                                                                                                                                                                                   |   | 2,752                   |       | 3,707                  |       |
| Other assets                                                                                                                                                                                                                                                                              |   | 3,023                   |       | 2,904                  |       |
| **Total assets**                                                                                                                                                                                                                                                                          |   | $                       | 1,065,927  |                   | $          | 911,932 |   |
|                                                                                                                                                                                                                                                                                      |   |                    |       |                   |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                                                                                             |   |                    |       |                   |       |
| Liabilities                                                                                                                                                                                                                                                                               |   |                    |       |                   |       |
| Deposits:                                                                                                                                                                                                                                                                                 |   |                    |       |                   |       |
| Noninterest bearing                                                                                                                                                                                                                                                                       |   | $                       | 110,914    |                   | $          | 53,753 |   |
| Interest bearing                                                                                                                                                                                                                                                                          |   | 789,324                 |       | 736,333                |       |
| **Total deposits**                                                                                                                                                                                                                                                                        |   | 900,238                 |       | 790,086                |       |
| Long-term borrowings                                                                                                                                                                                                                                                                      |   | 74,198                  |       | 39,492                 |       |
| Borrowings made by Employee Stock Ownership Plan (ESOP) to outside  parties                                                                                                                                                                                                               |   | 2,357                   |       | 2,888                  |       |
| Accrued interest payable                                                                                                                                                                                                                                                                  |   | 2,890                   |       | 2,919                  |       |
| Other liabilities                                                                                                                                                                                                                                                                         |   | 3,856                   |       | 4,679                  |       |
| **Total liabilities**                                                                                                                                                                                                                                                                     |   | 983,539                 |       | 840,064                |       |
| Company obligated mandatorily redeemable trust preferred securities                                                                                                                                                                                                                       |   | 15,515                  |       | 15,501                 |       |
| Stock owned by Employee Stock Ownership Plan (ESOP) participants;  673,194 shares at September 30, 2003 and December 31, 2002, at fair  value; net of unearned ESOP shares of 144,565 shares at September 30, 2003  and 177,541 shares at December 31, 2002, at historical cost |   | 9,955                   |       | 9,462                  |       |
| Commitments and contingencies                                                                                                                                                                                                                                                             |   |                    |       |                   |       |
| Stockholders’ Equity                                                                                                                                                                                                                                                                 |   |                    |       |                   |       |
| Common stock, no par, authorized 40,000,000 shares; issued  6,856,800 shares                                                                                                                                                                                                    |   | 6,836                   |       | 6,836                  |       |
| Additional paid-in capital                                                                                                                                                                                                                                                                |   | 236                     |       | 199                    |       |
| Retained earnings                                                                                                                                                                                                                                                                         |   | 50,241                  |       | 39,990                 |       |
| Accumulated other comprehensive income                                                                                                                                                                                                                                                    |   | 164                     |       | 439                    |       |
| Total stockholders’ equity before treasury stock                                                                                                                                                                                                                                     |   | 57,477                  |       | 47,464                 |       |
| Treasury stock, at cost, 29,128 shares                                                                                                                                                                                                                                               |   | (559                    | )          | (559                   | )          |
| **Total stockholders’ equity**                                                                                                                                                                                                                                                       |   | 59,918                  |       | 46,905                 |       |
| **Total liabilities and stockholders’ equity**                                                                                                                                                                                                                                       |   | $                       | 1,065,927  |                   | $          | 911,932 |   |

 

The accompanying notes are an integral part of these unaudited consolidatedfinancial statements.

 

2

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**TRINITY CAPITAL CORPORATION &SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF INCOME**

**For the Three and Nine Months Ended September30, 2003 and 2002**

**(Amounts in thousands except share and pershare data)**

**(Unaudited)**

** **
|                                                                 |   | **Three  Months Ended**  |   | **Nine  Months Ended**   |   |
|----------------------------------------------------------------------|--------|--------------------------|--------|--------------------------|--------|
|                                                                 |   | **September  30,  2003** |   | **September  30,  2002** |   | **September  30,  2003** |   | **September  30,  2002** |   |
| Interest income:                                                     |   |                     |   |                     |   |   |   |   |   |
| Loans, including fees                                                |   | $                        | 12,563 |                     | $      | 12,086 |   | $ | 37,419 |   | $ | 36,609 |   |
| Investment securities:                                               |   |                     |   |                     |   |   |   |   |   |
| Taxable                                                              |   | 831                      |   | 1,071                    |   | 2,570 |   | 2,955 |   |
| Nontaxable                                                           |   | 144                      |   | 85                       |   | 370 |   | 226 |   |
| Federal funds sold                                                   |   | 1                        |   | —                   |   | 3 |   | 3 |   |
| Other interest bearing deposits                                      |   | 99                       |   | 154                      |   | 232 |   | 411 |   |
| **Total interest income**                                            |   | 13,638                   |   | 13,396                   |   | 40,594 |   | 40,204 |   |
| Interest expense:                                                    |   |                     |   |                     |   |   |   |   |   |
| Deposits                                                             |   | 3,686                    |   | 4,896                    |   | 12,089 |   | 15,136 |   |
| Short-term borrowings                                                |   | —                   |   | 24                       |   | 2 |   | 196 |   |
| Long-term borrowings                                                 |   | 614                      |   | 397                      |   | 1,372 |   | 1,240 |   |
| **Total interest expense**                                           |   | 4,300                    |   | 5,317                    |   | 13,463 |   | 16,572 |   |
| **Net interest income**                                              |   | 9,338                    |   | 8,079                    |   | 27,131 |   | 23,632 |   |
| Provision for loan losses                                            |   | 600                      |   | 600                      |   | 1,800 |   | 1,900 |   |
| **Net interest income after provision for loan losses**              |   | 8,738                    |   | 7,479                    |   | 25,331 |   | 21,732 |   |
| Other income:                                                        |   |                     |   |                     |   |   |   |   |   |
| Mortgage loan servicing fees                                         |   | 594                      |   | 438                      |   | 1,634 |   | 1,248 |   |
| Loan and other fees                                                  |   | 465                      |   | 400                      |   | 1,291 |   | 1,159 |   |
| Service charges on deposits                                          |   | 332                      |   | 312                      |   | 960 |   | 858 |   |
| Gain on sale of loans                                                |   | 3,148                    |   | 1,158                    |   | 9,871 |   | 3,310 |   |
| Gain on sale of securities                                           |   | —                   |   | 668                      |   | — |   | 668 |   |
| Other operating income                                               |   | 483                      |   | 311                      |   | 1,331 |   | 757 |   |
|                                                                 |   | 5,022                    |   | 3,287                    |   | 15,087 |   | 8,000 |   |
| Other expenses:                                                      |   |                     |   |                     |   |   |   |   |   |
| Salaries and employee benefits                                       |   | 3,984                    |   | 2,882                    |   | 11,201 |   | 8,228 |   |
| Occupancy                                                            |   | 407                      |   | 455                      |   | 1,313 |   | 1,358 |   |
| Data processing                                                      |   | 425                      |   | 260                      |   | 1,075 |   | 796 |   |
| Marketing                                                            |   | 317                      |   | 311                      |   | 982 |   | 884 |   |
| Amortization and valuation of mortgage servicing rights              |   | (2,486                   | )      | 1,285                    |   | 375 |   | 2,916 |   |
| Supplies                                                             |   | 252                      |   | 140                      |   | 682 |   | 413 |   |
| Other                                                                |   | 1,098                    |   | 824                      |   | 3,843 |   | 2,615 |   |
|                                                                 |   | 3,997                    |   | 6,157                    |   | 19,471 |   | 17,210 |   |
| **Income before income taxes and minority interest**                 |   | 9,763                    |   | 4,609                    |   | 20,947 |   | 12,522 |   |
| Income taxes                                                         |   | 3,516                    |   | 1,488                    |   | 7,495 |   | 4,050 |   |
| **Income before minority interest**                                  |   | 6,247                    |   | 3,121                    |   | 13,452 |   | 8,472 |   |
| Minority interest in trust preferred securities                      |   | 439                      |   | 426                      |   | 1,290 |   | 1,279 |   |
| Net income                                                           |   | $                        | 5,808  |                     | $      | 2,695 |   | $ | 12,162 |   | $ | 7,193 |   |
| Basic earnings per common share                                      |   | $                        | 0.87   |                     | $      | 0.41 |   | $ | 1.82 |   | $ | 1.09 |   |
| Diluted earnings per common share                                    |   | $                        | 0.87   |                     | $      | 0.41 |   | $ | 1.81 |   | $ | 1.08 |   |
| Dividends declared per common share                                  |   | $                        | — |                     | $      | — |   | $ | 0.29 |   | $ | 0.25 |   |
| Weighted average common shares outstanding                           |   | 6,683,107                |   | 6,618,808                |   | 6,679,422 |   | 6,618,808 |   |
| Weighted average common shares outstanding including dilutive shares |   | 6,714,241                |   | 6,640,119                |   | 6,710,556 |   | 6,640,119 |   |

 

Theaccompanying notes are an integral part of these unaudited consolidatedfinancial statements.

 

3

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**TRINITY CAPITAL CORPORATION &SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**For the Nine Months Ended September 30, 2003and 2002**

**(Amounts in thousands)**

**(Unaudited)**

 
|                                                                                         |   | **Nine Months Ended**  |    |
|----------------------------------------------------------------------------------------------|--------|------------------------|---------|
|                                                                                         |   | **September 30, 2003** |    | **September 30, 2002** |   |
| Cash Flows From Operating Activities                                                         |   |                   |    |   |   |
| Net income                                                                                   |   | $                      | 12,162  |   | $ | 7,193 |   |
| Adjustments to reconcile net income to net cash provided by (used in)  operating activities: |   |                   |    |   |   |
| Depreciation and amortization                                                                |   | 1,428                  |    | 1,199 |   |
| Net amortization (accretion) of:                                                             |   |                   |    |   |   |
| Mortgage servicing rights                                                                    |   | 678                    |    | 1,258 |   |
| Premiums and discounts on investment securities                                              |   | 1,072                  |    | 217 |   |
| Trust preferred security issuance costs                                                      |   | 14                     |    | 10 |   |
| Provision for loan losses                                                                    |   | 1,800                  |    | 1,900 |   |
| Change in mortgage servicing rights valuation allowance                                      |   | (303                   | )       | 1,658 |   |
| Loss on sale of premises and equipment                                                       |   | —                 |    | 2 |   |
| (Gain) on sale of available for sale securities                                              |   | —                 |    | (668 | ) |
| Federal Home Loan Bank (FHLB) stock dividends received                                       |   | (63                    | )       | (69 | ) |
| Gain on sale of loans                                                                        |   | (9,871                 | )       | (3,310 | ) |
| Loss on disposal of other real estate owned                                                  |   | 41                     |    | 111 |   |
| Write-down of value of other real estate owned                                               |   | 580                    |    | — |   |
| Decrease (Increase) in accrued interest and other assets                                     |   | 663                    |    | (699 | ) |
| Increase (Decrease) in accrued interest and other liabilities                                |   | 1,228                  |    | (3,185 | ) |
| Release of Employee Stock Ownership Plan (ESOP) shares                                       |   | 530                    |    | 563 |   |
| **Net cash provided by operating activities before  originations and gross sales of loans**  |   | 9,959                  |    | 6,180 |   |
| Gross sales of loans held for sale                                                           |   | 520,705                |    | 113,156 |   |
| Origination of loans held for sale                                                           |   | (464,763               | )       | (140,771 | ) |
| **Net cash provided by (used in) operating activities**                                      |   | 65,901                 |    | (21,435 | ) |
| Cash Flows From Investing Activities                                                         |   |                   |    |   |   |
| Proceeds from maturities and paydowns of investment securities  available for sale           |   | 13,120                 |    | 5,150 |   |
| Proceeds from maturities and paydowns of investment securities held to  maturity             |   | 7,430                  |    | 14,200 |   |
| Proceeds from sale of investment securities, available for sale                              |   | —                 |    | 27,906 |   |
| Purchase of investment securities available for sale                                         |   | (37,350                | )       | (18,475 | ) |
| Purchase of investment securities held to maturity                                           |   | (10,374                | )       | (53,966 | ) |
| Proceeds from sale of other real estate owned                                                |   | 3,206                  |    | 1,236 |   |
| Loans funded, net of repayments                                                              |   | (52,233                | )       | 12,120 |   |
| Purchases of premises and equipment                                                          |   | (2,057                 | )       | (6,160 | ) |
| **Net cash used in investing activities**                                                    |   | (78,258                | )       | (17,989 | ) |
| Cash Flows From Financing Activities                                                         |   |                   |    |   |   |
| Net increase in demand deposits, NOW accounts and savings accounts                           |   | 87,849                 |    | 95,715 |   |
| Net increase in time deposits                                                                |   | 22,303                 |    | 5,873 |   |
| Proceeds from issuances of short-term borrowings                                             |   | 51,194                 |    | — |   |
| Proceeds from issuances of long-term borrowings                                              |   | 40,000                 |    | — |   |
| Repayment of short-term borrowings                                                           |   | (51,194                | )       | (15,000 | ) |
| Repayment of long-term borrowings                                                            |   | (5,294                 | )       | (4,526 | ) |
| Repayment of ESOP debt                                                                       |   | (531                   | )       | (412 | ) |
| Dividend payments                                                                            |   | (3,823                 | )       | (3,380 | ) |
| **Net cash provided by financing activities**                                                |   | 140,504                |    | 78,270 |   |
| **Net increase in cash and cash equivalents**                                                |   | $                      | 128,147 |   | $ | 38,846 |   |
| Cash and cash equivalents:                                                                   |   |                   |    |   |   |
| Beginning of period                                                                          |   | 40,979                 |    | 41,400 |   |
| End of period                                                                                |   | $                      | 169,126 |   | $ | 80,246 |   |
|                                                                                         |   |                   |    |   |   |
| Supplemental Disclosures of Cash Flow Information                                            |   |                   |    |   |   |
| Cash payments for:                                                                           |   |                   |    |   |   |
| Interest                                                                                     |   | $                      | 13,492  |   | $ | 19,050 |   |
| Income taxes                                                                                 |   | 8,676                  |    | 4,053 |   |
| Non-cash investing and financing activities:                                                 |   |                   |    |   |   |
| Transfers from loans to other real estate owned                                              |   | 2,872                  |    | 1,252 |   |
| Change in unrealized gain on investment securities, net of taxes                             |   | (275                   | )       | (135 | ) |

 

The accompanying notes are an integral part of these unauditedconsolidated financial statements.

 

4

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**TRINITY CAPITAL CORPORATION &SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

** (Unaudited)**

 

**Note 1.  Basis of Presentation**

 

Theaccompanying unaudited consolidated financial statements include theconsolidated balances and results of operations of Trinity Capital Corporation(the “Company”) and its wholly owned subsidiaries: Los Alamos National Bank(the “Bank”), Title Guaranty & Insurance Company (the “Title Company”),Trinity Capital Trust I (“Trust I”), and Trinity CapitalTrust II (“Trust II”), collectively referred to as the “Company”. Thebusiness activities of the Company consist solely of the operations of itswholly owned subsidiaries. All significant intercompany balances andtransactions have been eliminated in consolidation.  In the opinion of management, all adjustments (consisting only ofnormal recurring adjustments) necessary for a fair presentation of thefinancial position, results of operations and cash flows for the interimperiods have been made.  The results ofoperations for the three and nine months ended September 30, 2003 are notnecessarily indicative of the results to be expected for the entire fiscalyear.

 

The unauditedinterim financial statements have been prepared in conformity with accountingprinciples generally accepted in the United States of America and industrypractice.  Certain information infootnote disclosure normally included in financial statements prepared inaccordance with accounting principles generally accepted in the United Statesof America and industry practice has been condensed or omitted pursuant torules and regulations of the Securities and Exchange Commission.  These financial statements should be read inconjunction with the consolidated financial statements and notes theretoincluded in the Company’s December 31, 2002 audited financial statements filedon Form 10.

 

Thepreparation of financial statements in conformity with accounting principals generallyaccepted in the United States of America requires management to make estimatesand assumptions which affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities as of the date of the financialstatements, as well as the reported amounts of income and expenses during thereported periods.  Actual results coulddiffer from those estimates.

 

**Note 2. Comprehensive Income**

 

Comprehensiveincome includes net income, as well as the change in net unrealized gain oninvestment securities available for sale, net of tax.  Comprehensive income was $5.5 million and $2.4 million for thethree month period ended September 30, 2003 and 2002, respectively, and $11.9million and $7.1 million for the nine month period ended September 30, 2003 and2002, respectively.

 

**Note 3. Earnings Per Share Data**

 

The followingtable sets forth the computation of basic and diluted earnings per share forthe periods indicated:

 
|                                                                               |   | **Three Months Ended September  30,**                           |   | **Nine Months Ended September  30,** |   |
|------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------|--------|--------------------------------------|--------|
|                                                                               |   | **2003**                                                        |   | **2002**                             |   | **2003** |   | **2002** |   |
|                                                                               |   | **(Unaudited; in thousands, except  share and per share data)** |   |
| Net income                                                                         |   | $                                                               | 5,808  |                                 | $      | 2,695 |   | $ | 12,162 |   | $ | 7,193 |   |
| Weighted average common shares issued                                              |   | 6,856,800                                                       |   | 6,856,800                            |   | 6,856,800 |   | 6,856,800 |   |
| LESS: Weighted average treasury stock shares                                       |   | (29,128                                                         | )      | (29,128                              | )      | (29,128 | ) | (29,128 | ) |
| LESS: Weighted average unearned Employee Stock Ownership Plan (ESOP)  stock shares |   | (144,565                                                        | )      | (208,864                             | )      | (148,250 | ) | (208,864 | ) |
| Weighted average common shares outstanding, net                                    |   | 6,683,107                                                       |   | 6,618,808                            |   | 6,679,422 |   | 6,618,808 |   |
| Basic earnings per common share                                                    |   | $                                                               | 0.87   |                                 | $      | 0.41 |   | $ | 1.82 |   | $ | 1.09 |   |
| Weighted average dilutive shares from stock option plan                            |   | 31,134                                                          |   | 21,311                               |   | 31,134 |   | 21,311 |   |
| Weighted average common shares outstanding including dilutive shares               |   | 6,714,241                                                       |   | 6,640,119                            |   | 6,710,556 |   | 6,640,119 |   |
| Diluted earnings per common share                                                  |   | $                                                               | 0.87   |                                 | $      | 0.41 |   | $ | 1.81 |   | $ | 1.08 |   |

 

5

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**Note 4. Recent Accounting Pronouncements**

 

Financial AccountingStandards Board Interpretation (FIN) No. 45, “Guarantor’s Accounting andDisclosure Requirements for Guarantees, Including Indirect Guarantees ofIndebtedness of Others - an Interpretation of FASB Statements No. 5, 57 and 107and Rescission of FASB Interpretation No. 34.” FIN 45 elaborates on thedisclosures to be made by a guarantor in its interim and annual financialstatements about its obligations under certain guarantees that it has issued.It also clarifies that a guarantor is required to recognize, at the inceptionof a guarantee, a liability for the fair value of the obligation undertaken inissuing the guarantee. The initial recognition and measurement provisions ofFIN 45 are applicable on a prospective basis to guarantees issued or modifiedafter December 31, 2002. The disclosure requirements of FIN 45 are effectivefor financial statements of interim or annual periods ending after December 15,2002, and were adopted in the Company’s financial statements for the year endedDecember 31, 2002. Implementation of the remaining provisions of FIN 45 onJanuary 1, 2003 did not have a significant impact on the Company’s financialstatements. The Company considers thefees collected in connection with the issuance of letters of credit to berepresentative of the fair value of its obligation undertaken in issuing theguarantee. Accordingly, under FIN 45, the Company now defers fees collected inconnection with the issuance of letters of credit. The fees are then recognizedin income proportionately over the life of the letter of credit agreement. Asof September 30, 2003, the Company had deferred letter of credit fees totaling$11,000, which represents the fair value of the Company’s potential obligationsunder the letter of credit guarantees.

 

FIN No. 46 “Consolidation ofVariable Interest Entities, an interpretation of Accounting Research BulletinNo. 51.” FIN 46 establishes accounting guidance for consolidation of variableinterest entities (VIE) that function to support the activities of the primarybeneficiary. The primary beneficiary of a VIE entity is the entity that absorbsa majority of the VIE’s expected losses, receives a majority of the VIE’sexpected residual returns, or both, as a result of ownership, controllinginterest, contractual relationship or other business relationship with a VIE.Prior to the implementation of FIN 46, VIEs were generally consolidated by anenterprise when the enterprise had a controlling financial interest throughownership of a majority of voting interest in the entity. The provisions of FIN46 were effective immediately for all arrangements entered into after January31, 2003. If a VIE existed prior to February 1, 2003, FIN 46 was effective atthe beginning of the first interim period beginning after June 15, 2003. However, on October 8, 2003, the FinancialAccounting Standards Board (FASB) deferred the implementation date of FIN 46until the first period ending after December 15, 2003.

 

TheCompany expects to adopt FIN 46 in connection with its consolidated financialstatements for the year ended December 31, 2003. In its current form, FIN 46may require the Corporation to de-consolidate its investment in Trinity CapitalTrust I and Trinity Capital Trust II in future financial statements. Thepotential de-consolidation of subsidiary trusts of bank holding companiesformed in connection with the issuance of trust preferred securities, likeTrinity Capital Trust I and II, appears to be an unintended consequence of FIN46. It is currently unknown if, or when, the FASB will address this issue. InJuly 2003, the Board of Governors of the Federal Reserve System issued asupervisory letter instructing bank holding companies to continue to includethe trust preferred securities in their Tier I capital for regulatory capitalpurposes until notice is given to the contrary. The Federal Reserve intends toreview the regulatory implications of any accounting treatment changes and, ifnecessary or warranted, provide further appropriate guidance. There can be noassurance that the Federal Reserve will continue to permit institutions toinclude trust preferred securities in Tier I capital for regulatory capitalpurposes. As of September 30, 2003, assuming the Company was not permitted toinclude the $15.5 million in trust preferred securities issued by TrinityCapital Trust I and II in its Tier 1 capital, the Company would still exceedthe regulatory required minimums for capital adequacy purposes.  If the trust preferred securities were nolonger permitted to be included in Tier 1 capital, the Corporation would alsobe permitted to redeem the capital securities, which bear interest from 9.95%to 10.875%, without penalty.

 

Theinterpretations of FIN 46 and its application to various transaction types andstructures are evolving. Management continuously monitors emerging issuesrelated to FIN 46, some of which could potentially impact the Corporation’sfinancial statements.

 

SFAS No. 149, “Amendment ofStatement 133 on Derivative Instruments and Hedging Activities.” SFAS 149amends and clarifies financial accounting and reporting for derivativeinstruments, including certain derivative instruments embedded in othercontracts and for hedging activities under SFAS 133, “Accounting for DerivativeInstruments and Hedging Activities.” The amendments (i) reflect decisions ofthe Derivatives Implementation Group (DIG), (ii) reflect decisions made by theFASB in conjunction with other projects dealing with financial instruments and(iii) address implementation issues related to the application of the definitionof a derivative. SFAS 149 also modifies various other existing pronouncementsto conform with the changes made to SFAS 133. SFAS 149 is effective forcontracts entered into or modified after June 30, 2003, and for hedgingrelationships designated after June 30, 2003, with all provisions appliedprospectively. Adoption of SFAS 149 on July 1, 2003 did not have a significantimpact on the Company’s financial statements.

 

6

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SFAS No. 150, “Accountingfor Certain Financial Instruments with Characteristics of both Liabilities andEquity.” SFAS 150 establishes standards for how an issuer classifies, measuresand discloses in its financial statements certain financial instruments withcharacteristics of both liabilities and equity. SFAS 150 requires that anissuer classify financial instruments that are within its scope as liabilities,in most circumstances. Such financial instruments include (i) financialinstruments that are issued in the form of shares that are mandatorilyredeemable; (ii) financial instruments that embody an obligation to repurchasethe issuer’s equity shares, or are indexed to such an obligation, and thatrequire the issuer to settle the obligation by transferring assets; (iii)financial instruments that embody an obligation that the issuer may settle byissuing a variable number of its equity shares if, at inception, the monetaryvalue of the obligation is predominantly based on a fixed amount, variations insomething other than the fair value of the issuer’s equity shares or variationsinversely related to changes in the fair value of the issuer’s equity shares;and (iv) certain freestanding financial instruments. SFAS 150 is effective forcontracts entered into or modified after May 31, 2003, and is otherwiseeffective at the beginning of the first interim period beginning after June 15,2003. However, on November 7, 2003, the FASB issued FSP FAS 150-3, “EffectiveDate, Disclosures, and Transition for Mandatorily Redeemable Financial Instrumentsof Certain Nonpublic Entities and Certain Mandatorily Redeemable NoncontrollingInterests under FASB Statement No. 150”. The effect of this FSP was to defer the effective date of SFAS 150indefinitely.

 

**Note 5. Long Term Borrowings**

 

TheCompany had Federal Home Loan Bank advances with maturity dates greater thanone year of $74.2 million and $42.4 million as of September 30, 2003 andDecember 31, 2002, respectively.  As ofSeptember 30, 2003, the advances have fixed interest rates ranging from 2.16% to6.34%.

 

**Note 6.  Company Obligated Mandatorily RedeemableTrust Preferred Securities**

 

AtSeptember 30, 2003 and December 31, 2002, the Company had $15.5 million infixed rate trust preferred securities through Trinity Capital Trust I andTrinity Capital Trust II, both being special purpose trusts and wholly ownedsubsidiaries of the Company.

 

InMarch 2000, the Company issued $10 million in trust preferredsecurities to outside investors through a newly formed special-purpose trust,Trinity Capital Trust I. Trust I is a wholly owned consolidated subsidiaryof the Company and its sole liability is the junior subordinated debentures.Distributions are cumulative and are payable semi-annually at a rate of $108.75per year of the stated liquidation amount of $1,000 per preferred security.Distributions of $1,088,000 were paid to outside investors for the nine monthsended September 30, 2003 and the twelve months ended December 31, 2002. Theobligations of Trust I are fully and unconditionally guaranteed, on a subordinatedbasis, by the Company.  The trustpreferred securities are mandatorily redeemable upon the maturity of thedebentures on March 8, 2030, or to the extent of any earlier redemption ofany debentures by the Company, and are callable beginning March 8, 2020.

 

InNovember 2001, the Company issued $6 million in trust preferredsecurities to outside investors through a newly formed special-purpose trust,Trinity Capital Trust II. Trust II is a wholly owned consolidatedsubsidiary of the Company and its sole liability is the junior subordinateddebentures. Distributions are cumulative and are payable semi-annually at arate of $99.50 per year of the stated liquidation amount of $1,000 perpreferred security. Distributions of $299,000 and $614,000 were paid to outsideinvestors for the nine months ended September 30, 2003 and the twelve monthsended December 31, 2002, respectively. The obligations of Trust II are fully and unconditionallyguaranteed, on a subordinated basis, by the Company.   The trust preferred securities are mandatorily redeemable uponthe maturity of the debentures on December 8, 2031, or to the extent ofany earlier redemption of any debentures by the Company, and are callablebeginning December 8, 2006.

 

The Companyissued the trust preferred securities to enhance its regulatory capital base,while also providing added liquidity. Under applicable regulatory guidelines,the trust preferred securities qualify as Tier 1 capital up to a maximum25% of Tier 1 capital. Any additional portion of trust preferredsecurities would qualify as Tier 2 capital. As of September 30, 2003, alloutstanding trust preferred securities qualified as Tier 1 capital. As theCompany’s stockholders’ equity increases, the amount of Tier 1 capitalthat can be comprised of trust preferred securities will increase.

 

Issuance costsof $212,000 related to the trust preferred securities were deferred and arebeing amortized over the period until mandatory redemption of the securities inDecember, 2031. During the nine months ended September 30, 2003 and the yearended December 31, 2002, respectively, $14,000 and $22,000 of theseissuance costs were amortized.

 

Dividendsaccrued and unpaid to securities holders totaled $270,000 and $408,000 onSeptember 30, 2003 and December 31, 2002, respectively.

 

7

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**Note 7. Pro Forma Impact of Stock-Based Compensation Plans**

 

As allowed under SFAS No.123, *Accounting for Stock-Based Compensation*,the Company measures stock-based compensation cost in accordance with themethods prescribed in Accounting Principles Board (APB) Opinion No. 25, *Accounting for Stock Issued to Employees*. As stock options are granted at fair value, there are no charges to earningsassociated with stock options granted.  Accordingly, no compensation costhas been recognized for grants made to date.  Had compensation cost beendetermined based on the fair value method prescribed in FASB Statement No. 123,reported net income and earnings per common share would have been reduced tothe pro forma amounts shown below (dollars in thousands, except earnings pershare data): 

 
|                                                                                                                                         |   | **Three Months Ended  September 30,**                |   | **Nine Months Ended  September 30,** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------|--------|--------------------------------------|--------|
|                                                                                                                                         |   | **2003**                                             |   | **2002**                             |   | **2003** |   | **2002** |   |
|                                                                                                                                         |   | **(Unaudited; in thousands except per  share data)** |   |
| Net income as reported                                                                                                                       |   | $                                                    | 5,808  |                                 | $      | 2,695 |   | $ | 12,162 |   | $ | 7,193 |   |
| Deduct: Total stock-based employee compensation expense determined  under fair value based method for all awards, net of related tax effects |   | 27                                                   |   | 27                                   |   | 81 |   | 81 |   |
|                                                                                                                                         |   |                                                 |   |                                 |   |   |   |   |   |
| Pro forma net income                                                                                                                         |   | $                                                    | 5,781  |                                 | $      | 2,668 |   | $ | 12,081 |   | $ | 7,112 |   |
|                                                                                                                                         |   |                                                 |   |                                 |   |   |   |   |   |
| Earnings per share:                                                                                                                          |   |                                                 |   |                                 |   |   |   |   |   |
| Basic – as reported                                                                                                                     |   | $                                                    | 0.87   |                                 | $      | 0.41 |   | $ | 1.82 |   | $ | 1.09 |   |
| Basic – pro forma                                                                                                                       |   | $                                                    | 0.87   |                                 | $      | 0.40 |   | $ | 1.81 |   | 1.07 |   |
|                                                                                                                                         |   |                                                 |   |                                 |   |   |   |   |   |
| Diluted – as reported                                                                                                                   |   | $                                                    | 0.87   |                                 | $      | 0.41 |   | $ | 1.81 |   | $ | 1.08 |   |
| Diluted – pro forma                                                                                                                     |   | $                                                    | 0.86   |                                 | $      | 0.40 |   | $ | 1.80 |   | 1.07 |   |

 

8

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**Item 2****.  Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

 

*This discussion is intended to focus oncertain financial information regarding the Company and the Bank and is writtento provide the reader with a more thorough understanding of its financialstatements. The following discussion and analysis of the Company’s financial positionand results of operations should be read in conjunction with the informationset forth in Item 3, Quantitative and Qualitative Disclosures about MarketRisk and the annual audited consolidated financial statements filed onForm 10.*

 

**SpecialNote Concerning Forward-Looking Statements**

 

ThisForm 10-Q (including information incorporated by reference) contains, andfuture oral and written statements of the Company may contain, forward-lookingstatements, within the meaning of such term in the Private SecuritiesLitigation Reform Act of 1995, with respect to the financial condition, resultsof operations, plans, objectives, future performance and business of theCompany. Forward-looking statements, which may be based upon beliefs,expectations and assumptions of our management and on information currentlyavailable to management, are generally identifiable by the use of words such as“believe,” “expect,” “anticipate,” “plan,” “intend,” “estimate,” “may,” “will,”“would,” “could,” “should” or other similar expressions. Additionally, allstatements in this document, including forward-looking statements, speak onlyas of the date they are made, and we undertake no obligation to update anystatement in light of new information or future events.

 

Our ability topredict results or the actual effect of future plans or strategies isinherently uncertain. Factors which could have a material adverse effect on ouroperations and future prospects include, but are not limited to, the following:

 

•                                          Thestrength of the United States economy in general and the strength of the localeconomies in which we conduct our operations which may be less favorable thanexpected and may result in, among other things, a deterioration in the creditquality and value of our assets.

 

•                                          Theeconomic impact of any future terrorist threats or attacks, and the response ofthe United States to any such threats and attacks.

 

•                                          Theeffects of, and changes in, federal, state and local laws, regulations andpolicies affecting banking, securities, insurance and monetary and financialmatters.

 

•                                          Theeffects of changes in interest rates (including the effects of changes in therate of prepayments of the Company’s assets) and the policies of the Board ofGovernors of the Federal Reserve System.

 

•                                          Ourability to compete with other financial institutions as effectively as wecurrently intend due to increases in competitive pressures in the financialservices sector.

 

•                                          Ourinability to obtain new customers and to retain existing customers.

 

•                                          Thetimely development and acceptance of products and services, including productsand services offered through alternative delivery channels such as theInternet.

 

•                                          Technologicalchanges implemented by us and by other parties, including third party vendors,which may be more difficult or more expensive than anticipated or which mayhave unforeseen consequences to us and its customers.

 

•                                          Ourability to develop and maintain secure and reliable electronic systems.

 

•                                          Ourability to retain key executives and employees and the difficulty that we mayexperience in replacing key executives and employees in an effective manner.

 

•                                          Consumerspending and saving habits which may change in a manner that affects ourbusiness adversely.

 

•                                          Businesscombinations and the integration of acquired businesses which may be moredifficult or expensive than expected.

 

•                                          Thecosts, effects and outcomes of existing or future litigation.

 

9

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•                                          Changesin accounting policies and practices, as may be adopted by state and federalregulatory agencies and the Financial Accounting Standards Board.

 

•                                          Ourability to manage the risks associated with the foregoing as well asanticipated.

 

These risksand uncertainties should be considered in evaluating forward-looking statementsand undue reliance should not be placed on such statements. Additionalinformation concerning the Company and our business, including other factorsthat could materially affect our financial results, will be included in ourfilings with the Securities and Exchange Commission.

 

**IncomeStatement Analysis**

 

***Net Income-General.***  Net income for the three months endedSeptember 30, 2003 was $5.8 million, compared to $2.7 million for the sameperiod of 2002.  Earnings per shareincreased by $0.46 to $0.87 for the three months ended September 30, 2003 from$0.41 for the same period of 2002.  Thisrepresented an increase in earnings per share of 112.2%.  The increase in net income was primarily theresult of an increase in net interest income, coupled with increases innon-interest income related to mortgage loan servicing and gains on the salesof loans and a decrease in other expenses.

 

Net income forthe nine months ended September 30, 2003 was $12.2 million, compared to $7.2million for the same period of 2002. Earnings per share increased by $0.73 to $1.82 for the nine months endedSeptember 30, 2003 from $1.09 for the same period of 2002.  This represented an increase in earnings pershare of 67.0%.  The increase in netincome was primarily the result of increases in both net interest income andnon-interest income, which was partially offset by an increase in otherexpenses.

 

Theprofitability of the Company’s operations depends primarily on its net interestincome, which is the difference between total interest earned on interestearning assets and total interest paid on interest bearing liabilities. TheCompany’s net income is affected by its provision for loan losses as well asother income and other expenses. The provision for loan losses reflects theamount thought to be adequate to cover probable credit losses in the loanportfolio. Non-interest income or other income consists of mortgage loanservicing fees, loan and other fees, service charges on deposits, gain on saleof loans, gain on sale of securities and other operating income. Other expensesinclude salaries and employee benefits, occupancy expenses, data processingexpenses, marketing, amortization and valuation of mortgage servicing rights,supplies expense and other expenses.

 

The amount ofnet interest income is affected by changes in the volume and mix of interestearning assets, the level of interest rates earned on those assets, the volumeand mix of interest bearing liabilities, and the level of interest rates paidon those interest bearing liabilities. The provision for loan losses isdependent on changes in the loan portfolio and management’s assessment of thecollectibility of the loan portfolio, as well as economic and marketconditions. Other income and other expenses are impacted by growth ofoperations and growth in the number of accounts through both acquisitions andcore banking business growth. Growth in operations affects other expenses as aresult of additional employees, branch facilities and promotional marketingexpense. Growth in the number of accounts affects other income includingservice fees as well as other expenses such as computer services, supplies,postage, telecommunications and other miscellaneous expenses.

 

10

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***Net Interest Income.***  The following tables present, for theperiods indicated, the total dollar amount of interest income from averageinterest earning assets and the resultant yields, as well as the interestexpense on average interest bearing liabilities, and the resultant costs,expressed both in dollars and rates. Borrowings made by the Company’s EmployeeStock Ownership Plan (“ESOP”) to outside parties are

not included in this analysis,as the interest expense on this borrowing is born by the ESOP. Funding for theESOP is recognized as part of compensation expense:

 
|                                                      |   | **Three Months Ended September 30,**   |      |
|-----------------------------------------------------------|--------|----------------------------------------|-----------|
|                                                      |   | **2003**                               |      | **2002** |   |
|                                                      |   | **Average  Balance**                   |      | **Interest** |   | **Yield/Rate** |   | **Average  Balance** |   | **Interest** |   | **Yield/Rate** |   |
|                                                      |   | **(Unaudited;  Dollars in thousands)** |      |
| **Interest Earning Assets:**                              |   |                                   |      |   |   |   |   |   |   |   |   |   |   |
| Loans(1)(2)                                               |   | $                                      | 724,764   |   | $ | 12,563 |   | 6.88 | % | $ | 626,192 |   | $ | 12,086 |   | 7.66 | % |
| Taxable investment securities                             |   | 108,993                                |      | 831 |   | 3.02 |   | 97,992 |   | 1,071 |   | 4.34 |   |
| Investment securities exempt from federal income taxes(3) |   | 14,775                                 |      | 220 |   | 5.91 |   | 7,978 |   | 114 |   | 5.67 |   |
| Federal funds sold                                        |   | 560                                    |      | 1 |   | 0.71 |   | 108 |   | — |   | 1.64 |   |
| Other interest bearing deposits                           |   | 42,702                                 |      | 99 |   | 0.92 |   | 36,992 |   | 154 |   | 1.65 |   |
| Total interest earning assets                             |   | 891,794                                |      | 13,714 |   | 6.10 |   | 769,262 |   | 13,425 |   | 6.92 |   |
| Non-interest earning assets                               |   | 118,609                                |      |   |   |   |   | 86,420 |   |   |   |   |   |
| Total assets                                              |   | $                                      | 1,010,403 |   |   |   |   |   | $ | 855,682 |   |   |   |   |   |
|                                                      |   |                                   |      |   |   |   |   |   |   |   |   |   |   |
| **Interest Bearing Liabilities:**                         |   |                                   |      |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                 |   |                                   |      |   |   |   |   |   |   |   |   |   |   |
| NOW and money market deposit                              |   | $                                      | 201,199   |   | $ | 498 |   | 0.98 | % | $ | 177,453 |   | $ | 831 |   | 1.86 | % |
| Savings deposit                                           |   | 223,044                                |      | 650 |   | 1.16 |   | 179,047 |   | 972 |   | 2.15 |   |
| Time deposits                                             |   | 362,000                                |      | 2,538 |   | 2.78 |   | 323,555 |   | 3,093 |   | 3.79 |   |
| Short-term borrowings                                     |   | 174                                    |      | — |   | 2.28 |   | 5,000 |   | 24 |   | 1.90 |   |
| Long-term borrowings                                      |   | 69,447                                 |      | 614 |   | 3.51 |   | 36,830 |   | 397 |   | 4.28 |   |
| Total interest bearing liabilities                        |   | 855,864                                |      | 4,300 |   | 1.99 |   | 721,885 |   | 5,317 |   | 2.92 |   |
| Demand deposits—non-interest bearing                 |   | 60,575                                 |      |   |   |   |   | 55,239 |   |   |   |   |   |
| Other non-interest bearing liabilities                    |   | 28,917                                 |      |   |   |   |   | 24,070 |   |   |   |   |   |
| Stockholders’ equity, including stock owned by ESOP  |   | 65,047                                 |      |   |   |   |   | 54,488 |   |   |   |   |   |
| Total liabilities and stockholders equity                 |   | $                                      | 1,010,403 |   |   |   |   |   | $ | 855,682 |   |   |   |   |   |
|                                                      |   |                                   |      |   |   |   |   |   |   |   |   |   |   |
| Net interest income/interest rate Spread(4)               |   |                                   |      | $ | 9,414 |   | 4.11 | % |   |   | $ | 8,108 |   | 4.00 | % |
|                                                      |   |                                   |      |   |   |   |   |   |   |   |   |   |   |
| Net interest margin on a fully tax equivalent basis(5)    |   |                                   |      |   |   | 4.19 | % |   |   |   |   | 4.18 | % |
|                                                      |   |                                   |      |   |   |   |   |   |   |   |   |   |   |
| Net interest margin(5)                                    |   |                                   |      |   |   | 4.15 | % |   |   |   |   | 4.17 | % |

 

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(1)                                  Non-accrualloans are included in average loans.

 

(2)                                  Interestincome includes loan origination fees of $927,000 and $675,000 for the threemonths ended September 30, 2003 and 2002, respectively.

 

(3)                                  Non-taxableinvestment income is presented on a fully tax equivalent basis, adjusting forfederal and state exemption of interest income and associated disallowedinterest expense. The effective tax rate was 38% and 36% for 2003 and 2002,respectively. Disallowed expense was $17,000 and $7,000 for 2003 and 2002,respectively.

 

(4)                                  Interestrate spread represents the difference between the average yield on interestearning assets and the average cost of interest bearing liabilities and ispresented on a fully tax equivalent basis.

 

(5)                                  Netinterest margin represents net interest income as a percentage of averageinterest earning assets.

 

11

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For the thirdquarter of 2003, net interest income on a fully tax equivalent basis increased$1.3 million to $9.4 million from $8.1 million for the third quarter of2002.  The increase in net interestincome resulted from a decrease in interest expense of $1.0 million (19.1%),while interest income on a fully tax equivalent basis was virtuallyunchanged.  Interest expense decreaseddue to a decrease in rate on interest bearing liabilities of 93 basis points,which accounted for a decrease in interest expense of $1.9 million.  This was partially offset by an increase ininterest-bearing liabilities of $134.0 million, which accounted for an increasein interest expense of $900,000. Interest income on a fully tax equivalent basis decreased due to adecrease in rate on interest earning assets of 82 basis points, which accountedfor a decrease in interest income on a fully tax equivalent basis of $1.7million.  This was offset by an increasein volume of $122.5 million (15.9%), which accounted for an increase of $2.0million in interest income on a fully tax equivalent basis.  The net interest margin expressed in a fullytax equivalent basis increased 1 basis point to 4.19% for 2003 from 4.18% for2002.

 
|                                                      |   | **Nine Months Ended September 30,**    |    |
|-----------------------------------------------------------|--------|----------------------------------------|---------|
|                                                      |   | **2003**                               |    | **2002** |   |
|                                                      |   | **Average  Balance**                   |    | **Interest** |   | **Yield/Rate** |   | **Average  Balance** |   | **Interest** |   | **Yield/Rate** |   |
|                                                      |   | **(Unaudited;  Dollars in thousands)** |    |
| **Interest Earning Assets:**                              |   |                                   |    |   |   |   |   |   |   |   |   |   |   |
| Loans(1)(2)                                               |   | $                                      | 748,981 |   | $ | 37,419 |   | 6.68 | % | $ | 629,546 |   | $ | 36,609 |   | 7.77 | % |
| Taxable investment securities                             |   | 105,580                                |    | 2,570 |   | 3.25 |   | 80,790 |   | 2,955 |   | 4.89 |   |
| Investment securities exempt from federal income taxes(3) |   | 13,181                                 |    | 573 |   | 5.81 |   | 7,243 |   | 318 |   | 5.87 |   |
| Federal funds sold                                        |   | 546                                    |    | 3 |   | 0.73 |   | 211 |   | 3 |   | 1.90 |   |
| Other interest bearing deposits                           |   | 30,016                                 |    | 232 |   | 1.03 |   | 33,125 |   | 411 |   | 1.66 |   |
| Total interest earning assets                             |   | 898,304                                |    | 40,797 |   | 6.07 |   | 750,915 |   | 40,296 |   | 7.17 |   |
| Non-interest earning assets                               |   | 63,540                                 |    |   |   |   |   | 74,393 |   |   |   |   |   |
| Total assets                                              |   | $                                      | 961,844 |   |   |   |   |   | $ | 825,308 |   |   |   |   |   |
|                                                      |   |                                   |    |   |   |   |   |   |   |   |   |   |   |
| **Interest Bearing Liabilities:**                         |   |                                   |    |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                 |   |                                   |    |   |   |   |   |   |   |   |   |   |   |
| NOW and money market deposit                              |   | $                                      | 195,773 |   | $ | 1,835 |   | 1.25 | % | $ | 161,211 |   | $ | 2,259 |   | 1.87 | % |
| Savings deposit                                           |   | 216,450                                |    | 2,375 |   | 1.47 |   | 169,567 |   | 2,728 |   | 2.15 |   |
| Time deposits                                             |   | 354,913                                |    | 7,879 |   | 2.97 |   | 319,701 |   | 10,149 |   | 4.24 |   |
| Short-term borrowings                                     |   | 251                                    |    | 2 |   | 1.07 |   | 8,407 |   | 196 |   | 3.12 |   |
| Long-term borrowings                                      |   | 47,714                                 |    | 1,372 |   | 3.84 |   | 38,519 |   | 1,240 |   | 4.30 |   |
| Total interest bearing liabilities                        |   | 815,101                                |    | 13,463 |   | 2.21 |   | 697,405 |   | 16,572 |   | 3.18 |   |
| Demand deposits—non-interest bearing                 |   | 62,283                                 |    |   |   |   |   | 49,606 |   |   |   |   |   |
| Other non-interest bearing liabilities                    |   | 21,703                                 |    |   |   |   |   | 25,279 |   |   |   |   |   |
| Stockholders’ equity, including stock owned by ESOP  |   | 62,757                                 |    |   |   |   |   | 53,018 |   |   |   |   |   |
| Total liabilities and stockholders equity                 |   | $                                      | 961,844 |   |   |   |   |   | $ | 825,308 |   |   |   |   |   |
|                                                      |   |                                   |    |   |   |   |   |   |   |   |   |   |   |
| Net interest income/interest rate Spread(4)               |   |                                   |    | $ | 27,334 |   | 3.86 | % |   |   | $ | 23,724 |   | 3.99 | % |
|                                                      |   |                                   |    |   |   |   |   |   |   |   |   |   |   |
| Net interest margin on a fully tax equivalent basis(5)    |   |                                   |    |   |   | 4.07 | % |   |   |   |   | 4.22 | % |
|                                                      |   |                                   |    |   |   |   |   |   |   |   |   |   |   |
| Net interest margin(5)                                    |   |                                   |    |   |   | 4.04 | % |   |   |   |   | 4.21 | % |

 

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(1)                                  Non-accrualloans are included in average loans.

 

(2)                                  Interestincome includes loan origination fees of $2,679000 and $1,748,000 for the ninemonths ended September 30, 2003 and 2002, respectively.

 

(3)                                  Non-taxableinvestment income is presented on a fully tax equivalent basis, adjusting forfederal and state exemption of interest income and associated disallowedinterest expense. The effective tax rate was 38% and 36% for 2003 and 2002,respectively. Disallowed expense was $42,000 and $23,000 for 2003 and 2002,respectively.

 

(4)                                  Interestrate spread represents the difference between the average yield on interestearning assets and the average cost of interest bearing liabilities and ispresented on a fully tax equivalent basis.

 

(5)                                  Netinterest margin represents net interest income as a percentage of averageinterest earning assets.

 

12

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For the ninemonths ended September 30, 2003, net interest income on a fully tax equivalentbasis increased $3.6 million to $27.3 million from $23.7 million for the ninemonths ended September 30, 2002.  Theincrease in net interest income resulted from a decrease in interest expense of$3.1 million (18.8%), while interest income on a fully tax equivalent basis wasvirtually unchanged.  Interest expensedecreased due to a decrease in rate on interest bearing liabilities of 97 basispoints, which accounted for a $5.3 million decrease.  This was partially offset by an increase in the volume ofinterest-bearing liabilities of $117.7 million, which increased interestexpense by $2.2 million.  Interestincome on a fully tax equivalent basis decreased due to a decrease in rate oninterest earning assets of 110 basis points, which accounted for a decrease of$6.9 million.  This was offset by anincrease in volume of $147.4 million (19.6%), which accounted for an increaseof $7.4 million in interest income on a fully tax equivalent basis.  The net interest margin expressed in a fullytax equivalent basis decreased 15 basis points to 4.07% for 2003 from 4.22% for2002.

 

***Volume, Mix and RateAnalysis of Net Interest Income.***  The following tables present the extent towhich changes in volume, changes in interest rates, and changes in the interestrates times the changes in volume of interest earning assets and interestbearing liabilities have affected our interest income and interest expenseduring the periods indicated. Information is provided on changes in eachcategory due to (i) changes attributable to changes in volume (change involume times the prior period interest rate), (ii) changes attributable tochanges in interest rate (changes in rate times the prior period volume) and(iii) changes attributable to changes in rate/volume (changes in interestrate times changes in volume).  Changesattributable to the combined impact of volume and rate have been allocatedproportionally to the changes due to volume and the changes due to rate:

 
|                                                      |   | **Three Months Ended September 30,** |   | **Nine Months Ended September 30,** |   |
|-----------------------------------------------------------|--------|--------------------------------------|--------|-------------------------------------|--------|
|                                                      |   | **2003 Compared to 2002**            |   | **2003 Compared to 2002**           |   |
|                                                      |   | **Change Due  to Volume**       |   | **Change Due  to Rate**        |   | **Total  Change** |   | **Change Due  to Volume** |   | **Change Due  to Rate** |   | **Total  Change** |   |
|                                                      |   | **(In thousands)**                   |   |
| **Interest Earning Assets:**                              |   |                                 |   |                                |   |   |   |   |   |   |   |   |   |
| Loans                                                     |   | $                                    | 1,786  |                                | $      | (1,309 | ) | $ | 477 |   | $ | 6,384 |   | $ | (5,574 | ) | $ | 810 |   |
| Taxable investment securities                             |   | 110                                  |   | (350                                | )      | (240 | ) | 762 |   | (1,147 | ) | (385 | ) |
| Investment securities exempt from federal income taxes(1) |   | 100                                  |   | 6                                   |   | 106 |   | 258 |   | (3 | ) | 255 |   |
| Federal funds sold                                        |   | 1                                    |   | —                              |   | 1 |   | 3 |   | (3 | ) | — |   |
| Other interest bearing deposits                           |   | 21                                   |   | (76                                 | )      | (55 | ) | (36 | ) | (143 | ) | (179 | ) |
| Total increase (decrease) in interest income              |   | 2,018                                |   | (1,729                              | )      | 289 |   | 7,371 |   | (6,870 | ) | 501 |   |
| **Interest Bearing Liabilities:**                         |   |                                 |   |                                |   |   |   |   |   |   |   |   |   |
| NOW and money market deposit accounts                     |   | 100                                  |   | (433                                | )      | (333 | ) | 421 |   | (845 | ) | (424 | ) |
| Savings deposits                                          |   | 200                                  |   | (522                                | )      | (322 | ) | 642 |   | (995 | ) | (353 | ) |
| Time deposits                                             |   | 338                                  |   | (893                                | )      | (555 | ) | 1,028 |   | (3,298 | ) | (2,270 | ) |
| Short-term borrowings                                     |   | (28                                  | )      | 4                                   |   | (24 | ) | (129 | ) | (65 | ) | (194 | ) |
| Long-term borrowings                                      |   | 300                                  |   | (83                                 | )      | 217 |   | 275 |   | (143 | ) | 132 |   |
| Total increase (decrease) in interest expense             |   | 910                                  |   | (1,927                              | )      | (1,017 | ) | 2,237 |   | (5,346 | ) | (3,109 | ) |
| Increase (decrease) in net interest income                |   | $                                    | 1,108  |                                | $      | 198 |   | $ | 1,306 |   | $ | 5,134 |   | $ | (1,524 | ) | $ | 3,610 |   |

 

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(1)                                  Non-taxableinvestment income is presented on a fully tax equivalent basis, adjusting forfederal and state exemption of interest income and associated disallowedinterest expense. Effective tax rate for three months ended September 30 was38% and 36% for 2003 and 2002, respectively; and for the nine months endedSeptember 30 was 38% and 36% for 2003 and 2002, respectively. Disallowedexpense for three months ended September 30 was $17,000 and $7,000 for 2003 and2002, respectively; and for the nine months ended September 30 was $42,000 and$23,000 for 2003 and 2002, respectively.

 

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***Other Income.***  In the third quarter of 2003, other incomeincreased by $1.7 million (52.8%) to $5.0 million from $3.3 million for thethird quarter of 2002.  Gain on loanssold increased $2.0 million due to the generation and sale of mortgages duringhistorically high mortgage refinancing volume. Additionally, mortgage loansservicing fees increased $156,000 (35.6%) and other operating income, comprisedmainly of fees generated from the sale of title insurance, increased $172,000(55.3%) in the third quarter 2003 from the third quarter 2002.  In the third quarter of 2002, other incomealso included a gain of $668,000 on the sale of securities, which was anon-recurring event and the Company has not sold securities since thattime.  It is not expected that thislevel of income resulting from the refinancing of mortgage loans will continuein the future.

 

In the ninemonths ended September 30, 2003, other income increased by $7.1 million (88.6%)to $15.1 million from $8.0 million for the nine months ended September 30,2002.  Gain on loans sold increased $6.6million due to the generation and sale of mortgages during historically highmortgage refinancing volume.  Additionally,mortgage loans servicing fees increased $386,000 (30.9%) and other operatingincome, comprised mainly of fees generated from the sale of title insurance,increased $574,000 (75.8%) in the first nine months of 2003 from the first ninemonths of 2002.  In the first ninemonths of 2002, other income also included a gain of $668,000 on the sale ofsecurities, which was a non-recurring event and the Company has not soldsecurities since that time.  It is notexpected that this level of income resulting from the refinancing of mortgageloans will continue in the future.

*** ***

***Other Expenses.***  For the third quarter of 2003, otherexpenses decreased $2.2 million (35.1%) to $4.0 million in 2003 from $6.2million in the third quarter of 2002. Amortization and valuation of mortgage servicing rights decreased by$3.8 million (293.5%), due to the increase in the valuation of mortgageservicing rights.  The increase in interestrates have the effect of increasing the fair value of the mortgage servicingrights and this change resulted in a credit to earnings, resulting in anegative expense reported on the income statement for this item during thethird quarter.  This valuation ofmortgage servicing rights is an estimate and subject to change.  Salaries and employee benefits increased by$1.1 million (38.2%), due to an increase in staff over the past 12 months of 70full-time equivalent employees (29.9%), most of whom were officer andsupervisor level employees in the loan department.  The increase in staff was necessary because of the extremely highmortgage loan refinancing volume during the year.  Data processing expensesincreased $165,000 (63.5%), due to increased software depreciation from thedevelopment of the Bank’s new internet banking software.  Other expenses increased $274,000 (33.3%)primarily as a result of increased fees for the processing of credit and debitcards of $114,000; additional legal and professional fees of $56,000 incurreddue to becoming an SEC filing company; and losses on sales of other real estateowned of $47,000.

 

In the ninemonths ended September 30, 2003, other expenses increased $2.3 million (13.1%)to $19.5 million in 2003 from $17.2 million in 2002.  Salaries and employee benefits increased by $3.0 million (36.1%),due to an increase in staff of 70 full-time equivalent employees (29.9%), mostof whom were officer and supervisor level employees in the loandepartment.  The increase in staff wasnecessary because of the extremely high mortgage loan refinancing volume duringthe year.  In addition, amortization andvaluation of mortgage servicing rights decreased $2.5 million from the ninemonths ended September 30, 2002 to the nine months ended September 30, 2003,due to large increases of the valuation of the mortgage servicing asset in thenow rising interest rate environment.  Dataprocessing expenses increased $279,000 (35.1%), due to increased softwaredepreciation from the development of the Bank’s new internet bankingsoftware.  Other expenses increased $1.2million (47.0%) primarily as a result of the write-down of the value of otherreal estate owned of $580,000; additional expenses for audit and legal andprofessional fees of $212,000 incurred due to compliance with SEC filingrequirements; and increased fees for the processing of credit and debit cardsof $164,000.

*** ***

***Income Taxes.***  In the third quarter of 2003, income taxexpense increased $2.0 million (136.3%) over the third quarter of 2002 to atotal of $3.5 million compared to $1.5 million.  The effective tax rate increased to 37.7% in the third quarter of2003, compared to 35.6% in the third quarter of 2002.

 

In the ninemonths ended September 30, 2003, income tax expense increased $3.4 million(85.1%) over the nine months ended September 30, 2002 to a total of $7.5million compared to $4.1 million.  Theeffective tax rate increased to 38.1% in the first nine months of 2003,compared to 36.0% in the first nine months of 2002.

 

***BalanceSheet—General.*** In the nine months ended September 30, 2003, total assets had increased$154.0 million (16.9%) to a total of $1,065.9 million on September 30, 2003compared to $911.9 million on December 31, 2002.  During the same period, total liabilities increased $143.4million (17.1%) to a total of $983.5 million on September 30, 2003 from $840.1on December 31, 2002.  Stockholders’equity increased $13.0 million (27.7%) to $59.9 million on September 30, 2003 comparedto $46.9 million on December 31, 2002. Growth in total liabilities has been primarily fueled by growth in totaldeposits of $110.2 million (13.9%), which in turn has funded growth in cash andcash equivalents, investment securities and loans.

 

***InvestmentSecurities.*** The primary purposes of the investment portfolio are to provide a sourceof earnings for liquidity management purposes, to provide collateral to pledgeagainst public deposits and to control interest rate risk. In managing theportfolio, we seek to obtain the objectives of safety of principal, liquidity,diversification and maximized return on funds. For an additional discussionwith respect to these matters, see “Liquidity” and “Capital Resources” underItem 2 and “Asset Liability Management” under Item 2A

 

14

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below.

 

15

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The followingtables set forth the amortized cost and fair value of our securities byaccounting classification category and by type of security as indicated:

** **
|                                |   | **At September 30, 2003** |   | **At December 31, 2002** |   | **At September 30, 2002** |   |
|-------------------------------------|--------|---------------------------|--------|-------------------------------|--------|---------------------------|--------|
|                                |   | **Amortized Cost**        |   | **Fair Value**                |   | **Amortized Cost**        |   | **Fair Value** |   | **Amortized Cost** |   | **Fair Value** |   |
|                                |   | **(In thousands)**        |   |
| Securities Available for Sale:      |   |                      |   |                          |   |                      |   |   |   |   |   |   |   |
| U.S. Government agencies            |   | $                         | 53,296 |                          | 53,556 |                      | $      | 31,405 |   | $ | 32,107 |   | $ | 26,082 |   | $ | 26,802 |   |
| Equity securities                   |   | 5,641                     |   | 5,646                         |   | 3,781                     |   | 3,787 |   | 3,741 |   | 3,746 |   |
| Total securities available for sale |   | $                         | 58,937 |                          | $      | 59,202                    |   | $ | 35,186 |   | $ | 35,894 |   | $ | 29,823 |   | $ | 30,548 |   |
|                                |   |                      |   |                          |   |                      |   |   |   |   |   |   |   |
| Securities Held to Maturity:        |   |                      |   |                          |   |                      |   |   |   |   |   |   |   |
| U.S. Government agencies            |   | $                         | 53,420 |                          | $      | 54,915                    |   | $ | 59,543 |   | $ | 61,055 |   | $ | 65,760 |   | $ | 65,991 |   |
| States and political subdivisions   |   | 18,917                    |   | 19,113                        |   | 10,380                    |   | 10,584 |   | 8,456 |   | 8,680 |   |
| Total securities held to maturity   |   | $                         | 72,337 |                          | $      | 74,028                    |   | $ | 69,923 |   | $ | 71,639 |   | $ | 74,216 |   | $ | 74,671 |   |

 

***Loan Portfolio.***  The following tables set forth thecomposition of the loan portfolio:

 
|                      |   | **At September 30, 2003**                                |    | **At December 31, 2002** |   | **At September 30, 2002** |   |
|---------------------------|--------|----------------------------------------------------------|---------|--------------------------|--------|---------------------------|--------|
|                      |   | **Amount**                                               |    | **Percent**              |   | **Amount**                |   | **Percent** |   | **Amount** |   | **Percent** |   |
|                      |   | **(September  30 data unaudited; Dollars in thousands)** |    |
| Commercial                |   | $                                                        | 68,308  |                     | 9.62   | %                         | $      | 65,778 |   | 9.94 | % | $ | 61,271 |   | 9.62 | % |
| Commercial real estate    |   | 274,266                                                  |    | 38.62                    | %      | 245,001                   |   | 37.02 | % | 229,669 |   | 36.06 | % |
| Residential real estate   |   | 210,050                                                  |    | 29.58                    | %      | 200,408                   |   | 30.28 | % | 202,379 |   | 31.78 | % |
| Construction real estate  |   | 108,353                                                  |    | 15.26                    | %      | 105,921                   |   | 16.01 | % | 99,151 |   | 15.57 | % |
| Installment and other     |   | 49,140                                                   |    | 6.92                     | %      | 44,656                    |   | 6.75 | % | 44,363 |   | 6.97 | % |
| Total loans               |   | 710,117                                                  |    | 100.00                   | %      | 661,764                   |   | 100.00 | % | 636,833 |   | 100.00 | % |
| Unearned income           |   | 1,343                                                    |    |                     |   | 1,316                     |   |   |   | 997 |   |   |   |
| Gross loans               |   | 708,774                                                  |    |                     |   | 660,448                   |   |   |   | 635,836 |   |   |   |
| Allowance for loan losses |   | 7,346                                                    |    |                     |   | 6,581                     |   |   |   | 6,386 |   |   |   |
| Net loans                 |   | $                                                        | 701,428 |                     |   |                      | $      | 653,867 |   |   |   | $ | 629,450 |   |   |   |

 

Net loansincreased $72.0 million (11.4%) to $701.4 million at September 30, 2003from $629.5 million at September 30, 2002. The increase was due primarilyto growth in the Company’s commercial real estate, construction and residentialreal estate loan portfolios.

 

***Asset Quality.***  The following table sets forth the amountsof non-performing loans and non-performing assets at the dates indicated:

 
|                                                         |   | **At  September  30, 2003**                              |   | **At  December  31, 2002** |   | **At  September  30, 2002** |   |
|--------------------------------------------------------------|--------|----------------------------------------------------------|--------|----------------------------|--------|-----------------------------|--------|
|                                                         |   | **(September 30 data unaudited:  Dollars in Thousands)** |   |
| Non-accruing loans                                           |   | $                                                        | 2,195  |                       | $      | 3,914                       |   | $ | 6,909 |   |
| Loans 90 days or more past due, still accruing interest |   | 455                                                      |   | —                     |   | 386                         |   |
| Total non-performing loans                                   |   | 2,650                                                    |   | 3,914                      |   | 7,295                       |   |
| Other real estate owned                                      |   | 2,752                                                    |   | 3,707                      |   | 2,243                       |   |
| Other repossessed assets                                     |   | 236                                                      |   | 39                         |   | 31                          |   |
| Total non-performing assets                                  |   | $                                                        | 5,638  |                       | $      | 7,660                       |   | $ | 9,569 |   |
|                                                         |   |                                                     |   |                       |   |                        |   |
| Total non-performing loans to total loans                    |   | 0.37                                                     | %      | 0.59                       | %      | 1.15                        | %      |
| Allowance for loan losses to non-performing loans            |   | 277.21                                                   | %      | 168.14                     | %      | 87.54                       | %      |
| Total non-performing assets to total assets                  |   | 0.53                                                     | %      | 0.84                       | %      | 1.07                        | %      |

 

16

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At September30, 2003, total non-performing assets decreased $4.0 million to $5.6 millionfrom $9.6 million at September 30, 2002 due to decreases in non-performingloans of $4.6 million, which was partially offset by increases in other realestate owned and other repossessed assets of $714 thousand.  The decreases in non-performing loans wereprimarily due to a $2.9 million construction loan that was moved into otherreal estate owned at a value of $2.5 million in 2002, and subsequently sold in2003.

 

At September30, 2003, total non-performing assets decreased $2.1 million to $5.6 millionfrom $7.7 million at December 31, 2002 primarily due to decreases innon-performing loans of $1.3 million. The decreases in non-performing loans were primarily due to twocommercial real estate loans totaling $1.2 million that were moved to otherreal estate owned and subsequently sold in 2003.

 

*Allowance for Loan Losses.*  Management believes the allowance for loanlosses accounting policy is critical to the portrayal and understanding of theCompany’s financial condition and results of operations. As such, selection andapplication of this “critical accounting policy” involves judgments, estimates,and uncertainties that are susceptible to change. In the event that differentassumptions or conditions were to prevail, and depending upon the severity ofsuch changes, the possibility of materially different financial condition orresults of operations is a reasonable likelihood.

 

The allowancefor loan losses is maintained at an amount that management believes will beadequate to absorb probable losses on existing loans, based on an evaluation ofthe collectibility of loans and prior loss experience. This evaluation alsotakes into consideration such factors as changes in the nature and volume ofthe loan portfolio, the value of underlying collateral, overall portfolioquality, review of specific problem loans, and current economic conditions thatmay affect the borrower’s ability to pay. While management uses the bestinformation available to make its evaluation, future adjustments to theallowance may be necessary if there are significant changes in economicconditions. In addition, as an integral part of their examination processregulatory agencies periodically review the Company’s allowance for loan lossesand may require the Company to make additions to the allowance based on theirevaluation of information available at the time of their examinations.

 

The followingtable presents an analysis of the allowance for loan losses for the periodspresented:

 
|                                                |   | **Three Months Ended**                |    | **Nine Months Ended**   |   |
|-----------------------------------------------------|--------|---------------------------------------|---------|-------------------------|--------|
|                                                |   | **September 30,  2003**               |    | **September 30,  2002** |   | **September 30,  2003** |   | **September 30,  2002** |   |
|                                                |   | **(Unaudited; Dollars in thousands)** |    |
| Balance at beginning of period                      |   | $                                     | 6,833   |                    | $      | 6,275 |   | $ | 6,581 |   | $ | 5,637 |   |
| Provision for loan losses                           |   | 600                                   |    | 600                     |   | 1,800 |   | 1,900 |   |
| Total charge-offs                                   |   | 260                                   |    | 503                     |   | 1,277 |   | 1,202 |   |
| Total recoveries                                    |   | 173                                   |    | 14                      |   | 242 |   | 51 |   |
| Net charge-offs                                     |   | 87                                    |    | 489                     |   | 1,035 |   | 1,151 |   |
| Balance at end of period                            |   | $                                     | 7,346   |                    | $      | 6,386 |   | $ | 7,346 |   | $ | 6,386 |   |
|                                                |   |                                  |    |                    |   |   |   |   |   |
| Gross loans at end of period                        |   | $                                     | 708,774 |                    | $      | 635,836 |   | $ | 708,774 |   | $ | 635,836 |   |
| Ratio of allowance to total loans                   |   | 1.03                                  | %       | 1.00                    | %      | 1.03 | % | 1.00 | % |
| Ratio of net charge-offs to average  loans (1) |   | 0.05                                  | %       | 0.31                    | %      | 0.18 | % | 0.24 | % |

 

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(1)                                  Netcharge-offs are annualized for the purposes of this calculation.

 

Netcharge-offs for the three months ended September 30, 2003 totaled $87 thousand,a decrease of $402 thousand from $489 thousand from the three months endedSeptember 30, 2002.  The majority of thecharge-offs were personal and commercial loans.  The provision for loan losses remained the same for the threemonths ended September 30, 2003 and September 30, 2002, due to management’sanalysis of current non-performing loans.

 

Netcharge-offs for the nine months ended September 30, 2003 totaled $1.0 million,a decrease of $116 thousand from $1.2 million from the nine months endedSeptember 30, 2002.  The majority of thecharge-offs were commercial real estate, largely due to a single commercialreal estate charge off of $296 thousand. The provision for loan losses decreased $100 thousand for the ninemonths ended September 30, 2003 compared to the nine months ended September 30,2002, due to management’s analysis of current non-performing loans.

 

17

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The Companymaintains its allowance for loan losses at a level that management believeswill be adequate to absorb probable losses on existing loans based on anevaluation of the collectibility of loans and prior loss experience. Threemethods are used to evaluate the adequacy of the allowance for loan losses:(1) historical loss experience, based on loss experience by qualityclassification in the previous twelve calendar quarters; (2) specificidentification, based upon management’s assessment of loans and the probabilitythat a charge off will occur in the upcoming quarter; and (3) loan concentrations,based on current or expected economic factors in the geographic and industrysectors where management believes the Company may eventually experience someloan losses.

 

Additions tothe allowance for loan losses, which are charged to earnings through the provisionfor loan losses, are determined based on a variety of factors, as indicatedabove. Although management believes the allowance for loan losses is sufficientto cover probable losses inherent in the loan portfolio, there can be noassurance that the allowance will prove sufficient to cover actual future loanlosses.

 

Along withother financial institutions, management shares a concern for the outlook ofthe economy during 2003 and beyond. A slowdown in economic activity beginningin 2001 severely impacted several major industries as well as the economy as awhole. Even though there are numerous indications of emerging strength, it isnot certain that this strength is sustainable. In addition, consumer confidencemay be negatively impacted by the substantial decline in equity prices, whichhave recovered somewhat during the year. These events could still adverselyaffect cash flows for both commercial and individual borrowers, as a result ofwhich, the Company could experience increases in problem assets, delinquenciesand losses on loans.

 

*Potential Problem Loans.*  The Company utilizes an internal assetclassification system as a means of reporting problem and potential problemassets. At scheduled Board of Directors meetings every quarter, a watch list ispresented, showing all loans listed as “Special Mention,” “Substandard,”“Doubtful” and “Loss.”  An asset isclassified Substandard if it is inadequately protected by the current net worthand paying capacity of the obligor or of the collateral pledged, if any.Substandard assets include those characterized by the distinct possibility thatthe Company will sustain some loss if the deficiencies are not corrected.Assets classified as Doubtful have all the weaknesses inherent in thoseclassified Substandard with the added characteristic that the weaknessespresent make collection or liquidation in full, on the basis of currentlyexisting facts, conditions and values, highly questionable and improbable.Assets classified as Loss are those considered uncollectible and viewed asnon-bankable assets, worthy of charge-off. Assets that do not currently exposethe Company to sufficient risk to warrant classification in one of theaforementioned categories, but possess weaknesses that may or may not be withinthe control of the customer are deemed to be Special Mention.

 

The Company’sdetermination as to the classification of its assets and the amount of itsvaluation allowances is subject to review by the Bank’s primary regulators,which can order the establishment of additional general or specific lossallowances. The OCC, in conjunction with the other federal banking agencies,has adopted an interagency policy statement on the allowance for loan losses.The policy statement provides guidance for financial institutions on both theresponsibilities of management for the assessment and establishment of adequateallowances and guidance for banking agency examiners to use in determining theadequacy of general valuation guidelines. Generally, the policy statementrecommends that (i) institutions have effective systems and controls toidentify, monitor and address asset quality problems; (ii) management hasanalyzed all significant factors that affect the collectibility of theportfolio in a reasonable manner; and (iii) management has establishedacceptable allowance evaluation processes that meet the objectives set forth inthe policy statement. Management believes it has established an adequateallowance for probable loan losses. The Company analyzes its process regularly,with modifications made if needed, and reports those results quarterly at Boardof Directors meetings. However, there can be no assurance that regulators, inreviewing the Company’s loan portfolio, will not request the Company tomaterially increase its allowance for loan losses at the time. Althoughmanagement believes that adequate specific and general loan loss allowanceshave been established, actual losses are dependent upon future events and, assuch, further additions to the level of specific and general loan lossallowances may become necessary.

 

The aggregateprincipal amounts of potential problem loans as of September 30, 2003 and 2002were approximately $30.9 million and $26.1 million, respectively. Included inthese potential problem loan totals are non-accrual, Special Mention,Substandard and Doubtful classifications, which comprise the watch listpresented to the Board of Directors. All loans classified as Loss have beencharged-off. Loans in this category generally include loans that were classifiedfor risk management and regulatory purposes.

 

18

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**Sources of Funds**

 

***Liquidity andSources of Capital***

 

The Company’scash flows are comprised of three classifications: cash flows from operatingactivities, cash flows from investing activities and cash flows from financingactivities. Net cash provided by (used in) operating activities was $65.9million and ($21.4) million for the nine months ended September 30, 2003 and2002, respectively.  Net cash providedby operating activities increased $86.7 million in the first nine months of2003 compared to the first nine months of 2002 largely due to the sale of loansheld for sale that increased $407.5 million over the first nine months of 2002,which was partially offset by the origination of loans held for sale thatincreased $324.0 million in the same period. Net cash (used in) investing activities was ($78.3) million and ($18.0)million for the nine months ended September 30, 2003 and 2002, respectively.  The $59.6 million increase in cash used byinvesting activities was largely due to the increase of cash used by loansfunded, net of repayments of $64.4 million. Net cash provided by financing activities was $140.5 million and $78.3million for the nine months ended September 30, 2003 and 2002,respectively.  The $62.2 millionincrease in cash provided by financing activities was mainly due to an increasein cash provided by short- and long-term borrowings (net of repayments) of$49.2 million from the first nine months of 2002 compared to the first ninemonths of 2003.

 

The Company expects to haveavailable cash to meet its liquidity needs.  Liquidity management ismonitored by the Asset/Liability committee of the Bank, which takes intoaccount the marketability of assets, the sources and stability of funding andthe level of unfunded commitments.  Inthe event that additional short-term liquidity is needed, we have establishedrelationships with several large regional banks to provide short-termborrowings in the form of federal funds purchases. We have borrowed, andmanagement believes that we could again borrow, $75.7 million for a shorttime from these banks on a collective basis. Additionally, we are a member ofthe Federal Home Loan Bank (“FHLB”) and have the ability to borrow from theFHLB. As a contingency plan for significant funding needs, the Asset/Liabilitycommittee may also consider the sale of investment securities, sellingsecurities under agreement to repurchase, sale of certain loans and/or thetemporary curtailment of lending activities.

 

At September 30, 2003, the Company’s total risk-basedcapital ratio was 11.83%, the Tier 1 capital to risk-weighted assets ratio was10.86%, and the Tier 1 capital to average assets ratio was 8.11%.  The Bank was categorized as“well-capitalized” under Federal Deposit Insurance Corporation regulations atSeptember 30, 2003 and December 31, 2002. At December 31, 2002, the Company’s total risk-based capital ratio was 11.15%,the Tier 1 capital to risk-weighted assets ratio was 10.21%, and the Tier 1capital to average assets ratio was 7.89%.

 

At September 30, 2003, the Company’s book value percommon share was $10.46.

 

**Item 3****.  Quantitativeand Qualitative Disclosures about Market Risk**

 

**AssetLiability Management**

 

The Company’snet interest income is subject to “interest rate risk” to the extent that itcan vary based on changes in the general level of interest rates. It is theCompany’s policy to maintain an acceptable level of interest rate risk over arange of possible changes in interest rates while remaining responsive tomarket demand for loan and deposit products. The strategy employed by theCompany to manage its interest rate risk is to measure its risk using anasset/liability simulation model and adjust the maturity of securities in itsinvestment portfolio to manage that risk.

 

Interest raterisk can also be measured by analyzing the extent to which the repricing ofassets and liabilities are mismatched to create an interest sensitivity “gap”.An asset or liability is said to be interest rate sensitive within a specifictime period if it will mature or reprice within that time period. The interestrate sensitivity gap is defined as the difference between the amount ofinterest earning assets maturing or repricing within a specific time period andthe amount of interest bearing liabilities maturing or repricing within thatsame time period. A gap is considered positive when the amount of interest ratesensitive assets exceeds the amount of interest rate sensitive liabilities. Agap is considered negative when the amount of interest rate sensitiveliabilities exceeds the amount of interest rate sensitive assets. During aperiod of rising interest rates, therefore, a negative gap would tend toadversely affect net interest income. Conversely, during a period of fallinginterest rates, a negative gap position would tend to result in an increase innet interest income.

 

19

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The followingtable sets forth the amounts of interest earning assets and interest bearingliabilities outstanding at September 30, 2003, which are anticipated by theCompany, based upon certain assumptions, to reprice or mature in each of thefuture time periods shown. Except as stated below, the amount of assets andliabilities shown which reprice or mature during a particular period weredetermined based on the earlier of the term to repricing or the term torepayment of the asset or liability. The table is intended to provide anapproximation of the projected repricing of assets and liabilities at September30, 2003 on the basis of contractual maturities and scheduled rate adjustmentswithin a three-month period and subsequent selected time intervals. The loanamounts in the table reflect principal balances expected to be reinvestedand/or repriced as a result of contractual amortization and rate adjustments onadjustable-rate loans. Loan and investment securities contractual maturitiesand amortization reflect modest prepayment assumptions. While NOW, money marketand savings deposit accounts have adjustable rates, it is assumed that theinterest rates on these accounts will not adjust immediately to changes inother interest rates.

 

Therefore, thetable is calculated assuming that these accounts will reprice based upon anhistorical analysis of rate changes of these particular accounts, withrepricing assigned to these accounts from six to fourteen months.

 

Borrowingsmade by the Employee Stock Ownership Plan (ESOP) are not included below, as theCompany does not recognize interest expense on these borrowings. The Companymakes discretionary contributions to the ESOP to service this debt, and thesecontributions are recognized as compensation expense.

 
|                                  |   | **Time to Maturity or Repricing** |    |
|---------------------------------------|--------|-----------------------------------|---------|
|                                  |   | **0-90 Days**                     |    | **91-365 Days** |   | **1-5 Years** |   | **Over 5 Years** |   | **Total** |   |
|                                  |   | **(Unaudited; In thousands)**     |    |
| **Interest Earning Assets:**          |   |                              |    |   |   |   |   |   |   |   |   |
| Loans                                 |   | $                                 | 381,559 |   | $ | 306,025 |   | $ | 18,700 |   | $ | 2,490 |   | $ | 708,774 |   |
| Investment securities                 |   | 16,132                            |    | 29,470 |   | 85,937 |   | — |   | 131,539 |   |
| Investment securities                 |   | 82,734                            |    | — |   | — |   | — |   | 82,734 |   |
| Federal funds sold                    |   | 44,000                            |    | — |   | — |   | — |   | 44,000 |   |
| Total interest earning assets         |   | $                                 | 524,425 |   | $ | 335,495 |   | $ | 104,637 |   | $ | 2,490 |   | $ | 967,047 |   |
|                                  |   |                              |    |   |   |   |   |   |   |   |   |
| **Interest Bearing Liabilities:**     |   |                              |    |   |   |   |   |   |   |   |   |
| NOW and money market deposit accounts |   | $                                 | 96,637  |   | $ | 103,782 |   | $ | 2,382 |   | $ | — |   | $ | 202,801 |   |
| Savings deposits                      |   | 71,090                            |    | 154,893 |   | — |   | — |   | 225,983 |   |
| Time deposits                         |   | 73,891                            |    | 206,377 |   | 73,823 |   | 6,449 |   | 360,540 |   |
| Short- and long-term borrowings       |   | 1,800                             |    | 5,516 |   | 23,316 |   | 59,081 |   | 89,713 |   |
| Total interest bearing liabilities    |   | $                                 | 243,418 |   | $ | 470,568 |   | $ | 99,521 |   | $ | 65,530 |   | $ | 879,037 |   |
|                                  |   |                              |    |   |   |   |   |   |   |   |   |
| Rate sensitive assets (RSA)           |   | $                                 | 524,425 |   | $ | 859,920 |   | $ | 964,557 |   | $ | 967,047 |   | $ | 967,047 |   |
| Rate sensitive liabilities (RSL)      |   | 243,418                           |    | 713,986 |   | 813,507 |   | 879,037 |   | 879,037 |   |
| Cumulative GAP (GAP=RSA-RSL)          |   | 281,007                           |    | 145,934 |   | 151,050 |   | 88,010 |   | 88,010 |   |
| RSA/Total assets                      |   | 49.20                             | %       | 80.67 | % | 90.49 | % | 90.72 | % | 90.72 | % |
| RSL/Total assets                      |   | 22.84                             | %       | 66.98 | % | 76.32 | % | 82.47 | % | 82.47 | % |
| GAP/Total assets                      |   | 26.36                             | %       | 13.69 | % | 14.17 | % | 8.26 | % | 8.26 | % |
| GAP/RSA                               |   | 53.58                             | %       | 16.97 | % | 15.66 | % | 9.10 | % | 9.10 | % |

 

Certainshortcomings are inherent in the method of analysis presented in the foregoingtable. For example, although certain assets and liabilities may have similarmaturities or periods to repricing, they may react in different degrees tochanges in market interest rates. Also, the interest rates on certain types ofassets and liabilities may fluctuate in advance of changes in market interestrates, while interest rates on other types of assets may lag behind changes inmarket rates. Additionally, in the event of a change in interest rates,prepayment and early withdrawal levels would likely deviate significantly fromthose assumed in calculating the table. Therefore, the Company does not relysolely on a gap analysis to manage its interest rate risk, but rather it useswhat it believes to be the more reliable simulation model relating to changesin net interest income.

 

Based onsimulation modeling at September 30, 2003 and December 31, 2002, the Company’snet interest income would change over a one-year time period due to changes ininterest rates as follows:

 

20

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**Change in Net Interest Income Over One YearHorizon**

 
| **Changes in Levels of** |   | **At September 30, 2003**             |   | **At December 31, 2002** |   |
|--------------------------|--------|---------------------------------------|--------|--------------------------|--------|
| **Interest Rates**       |   | **Dollar Change**                     |   | **Percentage Change**    |   | **Dollar Change** |   | **Percentage Change** |   |
|                     |   | **(Unaudited; Dollars in thousands)** |   |
| + 2.00                   | %      | $                                     | 154    |                     | 0.44   | % | $ | (1,998 | ) | (5.35 | )% |
| + 1.00                   |   | 364                                   |   | 1.04                     |   | (1,063 | ) | (2.87 | ) |
| (1.00                    | )      | (1,913                                | )      | (5.46                    | )      | 1,579 |   | 4.52 |   |
| (2.00                    | )      | (2,176                                | )      | (6.21                    | )      | 2,295 |   | 7.29 |   |
|                          |        |                                       |        |                          |        |  |  |  |  |  |  |

 

Simulationsused by the Company assume the following:

 

1.                                       Changesin interest rates are immediate.

 

2.                                       Itis the Company’s policy that interest rate exposure due to a 2.00% interestrate rise or fall be limited to 15.0% of the Company’s annual net interestincome, as forecasted by the simulation model. As demonstrated by the tableabove, the Company’s interest rate risk exposure was within this policy atSeptember 30, 2003.

 

Changes in netinterest income between September 30, 2003 and December 31, 2002 reflectchanges in the composition of interest earning assets and interest bearingliabilities, related interest rates, repricing frequencies, and the fixed orvariable characteristics of the interest earning assets and interest bearingliabilities.

 

**Item4****.  Controls andProcedures.**

 

An evaluation was performedunder the supervision and with the participation of the Company’s management,including the Chief Executive Officer and Chief Financial Officer, of theeffectiveness of the design and operation of the Company’s disclosure controlsand procedures (as defined in Rule 13a-15(e) promulgated under theSecurities and Exchange Act of 1934, as amended) as of September 30, 2003.Based on that evaluation, the Company’s management, including the ChiefExecutive Officer and Chief Financial Officer, concluded that the Company’sdisclosure controls and procedures were effective. There have been no significantchanges in the Company’s internal controls or in other factors that couldsignificantly affect internal controls.

 

**PART II****– OTHERINFORMATION**

 

**Item1.  Legal Proceedings**

 

The majority of lawsuits theCompany and the Bank are involved in are foreclosure and collection proceedingsdue to loan default which arise in the normal course of business. However,because the Bank acts as a depository of funds, from time to time it is namedas a defendant in lawsuits (such as garnishment proceedings) involving claimsto the ownership of funds in particular accounts and in other actions arisingin the normal course of business. Management does not believe that there iscurrently any pending or threatened proceeding against either the Company orthe Bank which, if determined adversely, would have a material effect on itsbusiness, financial condition or results of operations.

 

**Item2.  Changes inSecurities and Use of Proceeds**

 

None

 

**Item3.  Defaults UponSenior Securities**

 

None

 

**Item4.  Submission ofMatters to a Vote of Security Holders**

 

At the Annual Meeting ofStockholders held on October 1, 2003, George A. Cowan, William C. Enloe,Jeffrey F. Howell, Deborah U. Johnson, Jerry Kindsfather, Arthur B. Montoya,Jr., Lewis A. Muir, Stanley D. Primak, Charles A. Slocomb, Steve W. Wells andRobert P. Worcester were elected to serve as directors of the Company.  In addition, the stockholders elected tomake several amendments to the Articles of Incorporation, each as described belowand to ratify the appointment of Neff & Ricci LLP as the Company’sindependent auditors for 2003

 

21

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The voting for each matterwas as follows:

 

1.                                       Election of directors:

 
| **NOMINEE**            |   | **FOR**   |   | **WITHHOLD** |
|------------------------|--------|-----------|--------|--------------|
| George A. Cowan        |   | 5,678,154 |   | 10,130       |
| William C. Enloe       |   | 5,676,348 |   | 11,936       |
| Jeffrey F. Howell      |   | 5,584,976 |   | 103,308      |
| Deborah U. Johnson     |   | 5,496,674 |   | 191,610      |
| Jerry Kindsfather      |   | 5,588,391 |   | 99,893       |
| Arthur B. Montoya, Jr. |   | 5,600,474 |   | 87,810       |
| Lewis A. Muir          |   | 5,678,154 |   | 10,130       |
| Stanley D. Primak      |   | 5,584,074 |   | 104,210      |
| Charles A. Slocomb     |   | 5,596,874 |   | 91,410       |
| Steve W. Wells         |   | 5,678,154 |   | 10,130       |
| Robert P. Worcester    |   | 5,584,074 |   | 104,210      |

 

1.                                       Amend the Articlesof Incorporation to reduce thenumber of shares of authorized common stock, no par value per share, from40,000,000 to 20,000,000 and authorizing 1,000,000 shares of a new class ofpreferred stock, no par value per share:

 
| **For**   |   | **Against** |   | **Abstain** |
|-----------|--------|-------------|--------|-------------|
| 5,250,256 |   | 270,159     |   | 168,973     |

 

2.                                       Amend the Articles of Incorporation toprovide for three classes of directors, each serving a term of three years,with the term of one class expiring each year, and limiting the grounds forremoval from office to “for cause” and upon an affirmative vote of a majorityof shares outstanding, as well as allowing the board to fill vacancies and changethe number of directors:

 
| **For**   |   | **Against** |   | **Abstain** |
|-----------|--------|-------------|--------|-------------|
| 5,570,214 |   | 101,120     |   | 18,054      |

 

3.                                       Amend the Articles of Incorporation toprovide a requirement that advance notification of shareholder proposals andnominations for directors be made in writing on or before sixty (60) days priorto the anniversary of the previous annual meeting, and for nominations fordirectors to be received not more than ninety (90) days prior to theanniversary of the previous annual meeting to be voted upon or eligible forelection at the annual meeting:

 
| **For**   |   | **Against** |   | **Abstain** |
|-----------|--------|-------------|--------|-------------|
| 5,561,645 |   | 99,738      |   | 28,005      |

 

22

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4.                                       Amend the Articles of Incorporation torequire a majority of directors then in office, the president, or majority ofshares entitled to vote at the meeting to call a special meeting ofshareholders, rather than the current requirement that the president, board ofdirectors, or twenty percent (20%) of the shares entitled to vote at themeeting call special meetings of the shareholders:

 
| **For**   |   | **Against** |   | **Abstain** |
|-----------|--------|-------------|--------|-------------|
| 5,420,397 |   | 127,204     |   | 141,787     |

 

**5.**                                       Amendthe Articles of Incorporation increasing the vote required to amend thearticles of incorporation and to approve certain corporate actions from amajority to at least seventy percent (70%) of the shares entitled to vote,unless at least seventy percent (70%) of the board of directors has previouslyapproved the action, in which case only a majority is required:

** **
| **For**   |   | **Against** |   | **Abstain** |
|-----------|--------|-------------|--------|-------------|
| 5,482,115 |   | 122,232     |   | 85,041      |

** **

**6.**                                       Amendthe Articles of Incorporation increasing the number of shares required toapprove business combinations with significant shareholders (beneficial ownersof ten percent (10%) or more of the outstanding voting stock) from a majorityof shares entitled to vote to seventy percent (70%) of shares entitled to vote:

** **
| **For**   |   | **Against** |   | **Abstain** |
|-----------|--------|-------------|--------|-------------|
| 5,361,509 |   | 142,888     |   | 184,991     |

** **

**7.**                                       Amendthe Articles of Incorporation to provide for the indemnification of directorsand officers by the Company to the fullest extent authorized by law:

** **
| **For**   |   | **Against** |   | **Abstain** |
|-----------|--------|-------------|--------|-------------|
| 5,518,090 |   | 19,765      |   | 151,533     |

** **

**8.**                                       Amendthe Articles of Incorporation to provide for directors to consider the impactof change of control proposals upon customers, employees, creditors,communities and other societal and economic issues:

** **
| **For**   |   | **Against** |   | **Abstain** |
|-----------|--------|-------------|--------|-------------|
| 5,435,053 |   | 109,820     |   | 144,515     |

** **

**9.**                                       Ratifythe appointment of Neff & Ricci LLP as the Company’s independent auditorsfor the fiscal year ending December 31, 2003:

** **
| **For**   |   | **Against** |   | **Abstain** |
|-----------|--------|-------------|--------|-------------|
| 5,631,797 |   | 6,480       |   | 45,701      |

 

As a result of the creationof a staggered board, The following individuals will continue to serve asdirector of the Company: William C. Enloe, Deborah U. Johnson, Lewis A. Muirand Charles A. Slocomb for a term expiring in 2004; Jerry Kindsfather, Steve W.Wells and Robert P. Worcester for a term expiring in 2005; and George A. Cowan,Jeffrey F. Howell, Arthur B. Montoya, Jr. and Stanley D. Primak for a termexpiring in 2006.

 

**Item5.  Other Information**

 

None

 

23

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**Item6.  Exhibits andReports on Form 8-K**

 
|   | (a)    |                                                                                                                                                 |                                                                                                                                                                                                                                                                              |   | Exhibits            |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|
|   |   |                                                                                                                                                 |
| 31.1   |   | Certification of Chief  Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a)                                                                       |
| 31.2   |   | Certification of Chief  Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a)                                                                       |
| 32.1   |   | Certification of Chief  Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002. |
| 32.2   |   | Certification of Chief  Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002. |
|   |   |                                                                                                                                                 |
|   | (b)    |                                                                                                                                                 |                                                                                                                                                                                                                                                                              |   | Reports on Form 8-K |
|   |   |                                                                                                                                                 |
|   |   |                                                                                                                                                 | A report on Form 8-K was  filed on July 3, 2003, pursuant to Item 5 announcing the declaration of the  Company’s semi-annual dividend and other corporate matters.                                                                                                           |
|   |   |                                                                                                                                                 |
|   |   |                                                                                                                                                 | A report on Form 8-K was  filed on August 6, 2003, pursuant to Item 12, which reported, in the form of  a press release, the Company’s financial results for the quarter ended June  30, 2003.                                                                               |
|   |   |                                                                                                                                                 |                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                 | A report on Form 8-K was  filed on October 6, 2003 pursuant to Item 12, which reported, in the form of  a press release, announcing the results of its annual meeting of stockholders  as well as certain results for the quarter ended September 30, 2003.                       |
|   |   |                                                                                                                                                 |
|   |   |                                                                                                                                                 | A report on Form 8-K was  filed on November 3, 2003, pursuant to Item 12, which reported, in the form  of a press release, finalized results for the quarter ended September 30,  2003, which differed slightly from the initial results released in the  October 6, 2003 filing. |

 

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**SIGNATURES**

 

Pursuant tothe requirements of Section 12 of the Securities Exchange Act of 1934, theregistrant has duly caused this registration statement to be signed on itsbehalf by the undersigned, thereunto duly authorized.

 
|                     | **TRINITY CAPITAL CORPORATION** |
|--------------------------|---------------------------------|
|                     |                            |
|                     |                            |
| Date: November  14, 2003 | By:                             | /s/ WILLIAM C. ENLOE |
|                     |                            | William C. Enloe  President and Chief Executive Officer |
|                     |                            |   |
|                     |                            | /s/ Daniel R.  Bartholomew |
| Date: November 14, 2003  | By:                             | Daniel R. Bartholomew  Chief Finanical Officer |

 

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